2021 (8) TMI 1366 - AT - Central Excise

CENVAT Credit - input services - Contingent Liability Insurance/Public Product Liability Insurance - Marine Insurance Policy - period from August 2014 to June 2016 - HELD THAT - There are insurance policies which cover the risk on different aspects for manufacturer as well as service provider. Such indemnification is necessary to meet the risk and liability that may arise on the happening of a contingency mentioned in the policy. In the case of an injury caused by the use of product to the public the appellant is liable to compensate such mishappening. The policy would help the appellant to meet such liability. In case there is no such insurance policy the appellant will have to face huge financial loss which will affect the business of manufacture. Such policies are also required in the interest of the public to safeguard injuries that may occur due to consumption of products manufactured by the appellant - the credit availed on the service tax paid on Contingent Liability Insurance is eligible. Marine Insurance Policy - only ground alleged for denying the credit is that there is no nexus between the input services and the manufacturing activity - HELD THAT - The refund under Rule 5 can be claimed on the input services used for exports made under a particular quarter. In the present case the period covered by the Marine Insurance Policy is from 1-7-2016 to 30-6-2017. The policy covers the risk of goods under transit for a period of one year. Usually carrier may hold a transit policy which covers each consignment. The Marine Insurance Policy in the present case intends to indemnify the risk of the goods under transit belonging to the appellant. The discussion made by the Commissioner (Appeals) for denying the credit on this input service is legally misplaced - the credit on Marine Policy is eligible. Thus the disallowance of credit on Contingent Liability Insurance and Marine Insurance Policy cannot sustain. The impugned order to this extend is set aside - appeal allowed.

Summary

Issues involved:
1. Disallowance of credit on service tax paid on insurance policies.
2. Appeal against disallowance of credit in relation to Contingent Liability Insurance Policy and Marine Insurance Policy.

Analysis:

Issue 1: Disallowance of credit on service tax paid on insurance policies

The appellants, manufacturers of various products, availed credit of duty/service tax paid on inputs used for manufacturing their final products. An objection was raised during scrutiny that the credit availed on service tax paid on insurance policies is not eligible. Show cause notices were issued proposing to disallow the credit for certain periods. The original authority allowed credit for specific insurance policies but disallowed others. The department appealed against the allowed credits, leading to the Commissioner (Appeals) setting aside the original order and confirming the demand for certain policies. The appellant challenged this decision before the Tribunal.

Issue 1.1: Contingent Liability Insurance/Public Product Liability Insurance

The appellant argued that certain insurance policies, like Contingent Liability Insurance, are essential for indemnifying risks and liabilities that may arise in the course of business. The definition of "input services" under Cenvat Credit Rules, 2004, excludes credit only for specific types of insurance, not including policies like Product Liability Insurance. The appellant contended that such policies are directly connected to their manufacturing activity and should be considered eligible for credit. The Tribunal agreed, holding that the credit on Contingent Liability Insurance is eligible.

Issue 1.2: Marine Insurance Policy

The Commissioner (Appeals) denied credit on the Marine Insurance Policy on the grounds that it was availed beyond the "place of removal" and suggested applying for a refund under Rule 5 of Cenvat Credit Rules. However, the Tribunal found this reasoning legally misplaced. The Marine Insurance Policy, covering goods in transit, was deemed essential for the manufacturing business and directly connected to the appellant's activities. Therefore, the Tribunal held that the credit on the Marine Policy is eligible.

Issue 2: Appeal against disallowance of credit in relation to specific insurance policies

The Tribunal concluded that the disallowance of credit on Contingent Liability Insurance and Marine Insurance Policy was not sustainable. The impugned order was set aside, and the appeal was allowed with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the credit on the contested insurance policies.

This comprehensive analysis covers the issues involved in the legal judgment, providing detailed insights into the arguments presented and the Tribunal's decision on the matter.